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1998 Third Quarter Financial Reports
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Taiwan Semiconductor Manufacturing Company Ltd. Announces

Third Quarter Results for the Period Ended
September 30, 1998

Hsin-Chu, Taiwan, R. O. C., October 19, 1998 Taiwan Semiconductor Manufacturing Company Ltd. (TAIEX: 2330, NYSE: TSM), ("TSMC" or "the Company") the world's largest dedicated semiconductor foundry company, announced today the results of its operations for the third quarter ended September 30, 1998. All figures were prepared in accordance with generally accepted accounting principles in Taiwan.


3Q 98 Year-over-Year Financial Highlights

Net sales declined 3.9% to NT$11,263 million.
Operating income declined 31.8% to NT$2,827 million.
Net income declined 54% to NT$2,115 million.
Diluted earnings per share declined 54% to NT$0.35 from NT$0.76.


THIRD QUARTER RESULTS: YEAR-OVER-YEAR COMPARISON

Net Sales:
Net sales in the third quarter of 1998 totaled NT$11,263 million, down 3.9% compared with the same period of 1997, as a combined result of lower unit sales of eight-inch equivalent wafers, a higher average selling price (ASP) and a lower contribution from Packaging and Testing services sales. The unit sales of eight-inch equivalent wafers fell 16.1% to 263.4K units in the third quarter of 1998 from 314.1K in the same period of 1997. The ASP in the New Taiwan dollar rose by 15.7% year over year from NT$34.1K to NT$39.4K as the New Taiwan dollar depreciated from the weighted average rate of NT$28.32 to NT$34.59 per US dollar. In US dollar terms, the ASP declined 5.3%.
Gross Margins:
The gross margin declined to 36.6% in the third quarter of 1998 compared with 48.7% in the second quarter of 1997 mainly due to lower average capacity utilization.
Operating Expenses:
Operating expenses in the third quarter of 1998 declined 16.9% from the same period a year ago to NT$1,292 million due to cost control in general administrative expenses. Increase effort in research resulted in 62% rise in R&D expense during the same period a year ago.

Operating expenses as % of net sales decreased to 11.5% in the third quarter of 1998 from 13.3% in the same period of 1997.
Non-Operating Income / Expenses:
Non-operating income increased 396% in the third quarter of 1998 to NT$354 million from NT$71 million in the same period of 1997 due to proceeds from sale of the stock holding in Taiwan Mask Corporation in the third quarter of 1998. Non-operating expenses increased to NT$1,472 million from NT$399 million a year ago primarily due to higher interest expenses and investment losses of NT$1,070 million from Vanguard International Semiconductor and WaferTech combined.2 Consequently, the profit margin before tax declined to 15.2% from 32.6% a year ago.
Income Tax Credit (Expenses):
Net income tax expenses for 4Q98 was NT$1 million, down from NT$790 million of income tax credit in 4Q97 primarily due to lower capital expenditure and investments.
Income Tax:
Net income tax credit for the third quarter of 1998 was NT$406 million, down 47.5% compared with NT$774 million in the same quarter of 1997, due to lower capital expenditure and investments.
Net Income:
Net income declined 54% to NT$ 2,115 million in the third quarter of 1998. Diluted earnings per share were NT$0.35 for the third quarter of 1998, down from NT$0.76 in the same period of 1997.3


3Q 98 Sequential Financial Highlights

Net sales declined 2.9% to NT$11,263 million.
Operating income declined 25.1% to NT$2,827 million.
Net income declined 43.7% to NT$2,115 million.
Diluted earnings per share were NT$0.35, a decrease of 43.7% from NT$0.62.


THIRD QUARTER RESULTS: SEQUENTIAL COMPARISON

Net Sales:
Net sales in the third quarter of 1998 totaled NT$11,263 million, down 2.9% compared with the second quarter of 1998, as a result of lower unit sales of eight-inch equivalent wafers, higher average selling price (ASP) and lower contribution from other sales. Unit sales of eight-inch equivalent wafers fell 4.8% to 263.4K units in the third quarter of 1998 from 276.6K in the second quarter of 1997. The ASP in the New Taiwan dollar increased 3.3% sequentially to NT$39.4K from NT$38.1K as the New Taiwan dollar depreciated from the weighted average rate of NT$33.07 to NT$34.59 per US dollar. In the US dollar term, the ASP declined 1.2%.
Gross Margins:
The gross margin declined to 36.6% in the third quarter of 1998 compared with 45.3% in the second quarter of 1998 mainly due to lower average capacity utilization during the third quarter.
Operating Expenses:
Operating expenses in the third quarter of 1998 were NT$1,292 million, a decline of 12.9% from NT$1,484 million in the second quarter of 1998. The decline was mainly due to cost control efforts.
Non-Operating Income/Expenses:
Non-Operating income increased 112.9% in the third quarter of 1998 to NT$354 million from NT$166 million in the second quarter of 1998 due to NT$217 million in proceeds from the sale of the stock holding in TMC in the third quarter of 1998. Non-operating expenses increased to NT$1,472 million from NT$1,058 million in the second quarter primarily due to higher interest expenses and investment losses of NT$1,070 million from Vanguard International Semiconductor and WaferTech combined.
Income Tax:
Net income tax credit for the third quarter of 1998 was NT$406 million, down 53.7% compared with NT$877 million in the second quarter of 1998.
Net Income:
Net income declined 43.7% to NT$2,115 million in the third quarter of 1998 from NT$3,758 million in the second quarter of 1998 and diluted earnings per share (EPS) fell to NT$0.35 from NT$0.62 in the second quarter.

9 months 98 Year-over-Year Financial Highlights (for details see attached 9 months income statement)

For the first nine months of 1998, net sales rose 34.9% to NT$38.6 billion from NT$28.6 billion for the same period of 1997 due to an increase in unit sales of eight-inch equivalent wafers and a higher ASP. In the first nine months of 1998, unit sales increased by 14.4% and the ASP rose 21.1% compared to the first nine months of 1997. Net income rose 14.4% to NT$12.8 billion in the first nine months of 1998 from NT$11.2 billion a year ago. Diluted earnings per share in the first nine months of 1998 grew 14.4% to NT$2.12 from NT$1.85 in the first nine months of 1997. 4


Company Description:

Founded in 1987, TSMC is the first and largest semiconductor foundry company in the world. The company is based in Taiwan's "Silicon Valley", the Hsin-Chu Science-Based Industrial Park, and is dedicated to providing manufacturing services for advanced integrated circuits to fabless design houses and integrated device manufacturers (IDM). The company operates two 6" wafer fabs and three 8" wafer fabs offering a comprehensive set of IC fabrication processes, including processes to manufacture CMOS logic, mixed mode, volatile and non-volatile memory and BiCMOS chips. In mid-1996, TSMC began construction on the first-ever, pure-play foundry in the US, WaferTech, in Camas, Washington, - a $1.2 billion joint venture. Production at WaferTech commenced in June 1998, one month ahead of schedule. Fab 6 and 7 will be located in the new Tainan Science-Based Industrial Park in Taiwan.

Corporate Headquarters:
Taiwan Semiconductor Manufacturing Company Ltd.
No. 121, Park Avenue III, Hsin-Chu Science-Based Industrial Park
Hsin-Chu, Taiwan, R. O. C.
Tel: 886/3/578-0221
   
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